The sleeve head has an excessive amount of ease which is causing it to pucker around the armhole seam.
Remove the sleeve from the armhole and redistribute the ease until the sleeve head is smooth but curved into a good shape. Take in the underarm seam the necessary amount or deepen the armhole.
The maximum amount of ease which it is possible to incorporate in a sleeve head varies according to the fabric being used (e.g. a soft woolen can be eased far more than a poplin) but average amounts are between 1"-2" (2.5cm-5.0cm). Always ease in the maximum amount possible as this is necessary both for appearance and comfort.
The front usually needs slightly more ease because shoulder bone protrudes slightly more at the front.
Before cutting out a garment, check the length of the armhole against the length of the sleeve calculate the ease allowed and adjust if necessary.
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